AI data center expansion faces growing headwinds

Companies that pivoted from Bitcoin mining to AI hosting have been particularly affected. Over the past month, Cipher Digital (NASDAQ:CIFR) shares plummeted 55.05%, IREN dropped 44.07%, Hut 8 (NASDAQ:HUT) lost 41.04%, Galaxy Digital (NASDAQ:GLXY) fell 36.17%, and Core Scientific (NASDAQ:CORZ) decreased by 26.22%.

Despite this market turbulence, demand for AI computing remains robust. Amazon Web Services (AWS) reported a 39% revenue increase, its fastest growth in five years, with a backlog of $578 billion. AWS parent company anticipates significant capital spending, projecting $220 billion in 2026 and even more in 2027. CEO Andy Jassy characterized the situation as, “Almost as fast as we install capacity, customers are gobbling it up.”

Data center vacancy rates are exceedingly low, with Galaxy Digital reporting a rate of 0.9%. This scarcity has fueled long-term contracts, with Core Scientific boasting a backlog of over $24 billion and IREN reporting $20.3 billion. Hut 8 values its AI portfolio at approximately $26.6 billion.

However, securing funding and political approvals are becoming increasingly challenging. IREN management noted that “capital markets have become more selective,” and the company still needs to raise $6 billion. Core Scientific CEO Adam Sullivan emphasized that “capital is the throttle on all new development,” citing developers selling powered land and unfinished projects due to funding constraints.

Tenant creditworthiness also poses a hurdle. Galaxy Digital declined lease terms for its Helios II expansion due to concerns about investment-grade protections. Rising construction costs are adding to the pressure, as Cipher Digital faced $359 million in change orders on a $409 million request at its Barber Lake project.

Political scrutiny is intensifying. Governor-elect Gina Hinojosa has vowed to halt new data center approvals until protections are in place for electricity customers, water supplies, and local communities, building upon existing restrictions from outgoing Gov. Greg Abbott. New York Governor Kathy Hochul previously imposed a one-year moratorium on new hyperscale permits.

The key differentiator among companies now is access to reliable power. IREN’s 1.4 gigawatt Sweetwater 1 site is already grid-connected, while Hut 8 secured $3.25 billion and $4.25 billion in investment-grade project bonds. Cipher Digital’s 1 gigawatt Colchis site has only a conditional grid classification, and Galaxy’s Caspian project faces delays until April 2027.

Several key dates loom large. Texas data center audits will be released on December 10, 2026, and Electric Reliability Council of Texas (ERCOT) Batch Zero classifications are due December 17, 2026. IREN’s revised ARR deadline arrives in January, and Core Scientific anticipates $650 million from expiring warrants. Any freeze from Hinojosa could disproportionately impact developers with only announced plans.